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MTD: Decide whether to deregister for VAT

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From April 2022 Making Tax Digital (MTD) will be extended to businesses that are voluntarily registered for VAT. Accountants should discuss the option of deregistration for these businesses as soon as possible.

11th Jun 2021
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A business can register for VAT at any time if it is either making or intending to make taxable sales. Many businesses are VAT registered with annual taxable sales that have always been less than the £85,000 compulsory threshold.

Some businesses have no sales for many years but are VAT registered in order to claim input tax. For example, a forester may be waiting for trees to grow so that wood can be sold in the future.

There are two main reasons for voluntary registration:

Input tax recovery

The opportunity to claim input tax on expenses is usually only worthwhile if a business is making zero-rated sales (eg: a bakery selling take-away sandwiches). Voluntary registration also works well for those making positive rated sales to customers that are VAT registered and able to claim input tax  eg: freelance marketing consultant working only for VAT registered businesses.

Prestige

Having a VAT number sometimes gives extra credibility to a small business – conveying the message that “we are a serious player,”.

Extending MTD to voluntary registrations

MTD will be compulsory for all VAT registrations for periods beginning on 1 April 2022 or later. The MTD regime is being extended to voluntary registrations – and there are a lot of them.

The good news is that HMRC estimates that one-third of voluntarily registered businesses are already MTD compliant. This makes sense because I know that many accounting practices adopted the approach of “MTD for all” a few years ago, knowing that the MTD fishing net would be widened at some stage.

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Replies (8)

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By ireallyshouldknowthisbut
11th Jun 2021 16:14

pfft.

Give the clients two options: £250+ in software, learn a new system and be compliant,

or have us type in the numbers into excel, bridge software, sorted, and take the (currently only theoretical) risk of a fine.

I am in the business of helping clients pay the right amount of tax not worrying about petty compliance issues.

Thanks (2)
Replying to ireallyshouldknowthisbut:
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By Hugo Fair
11th Jun 2021 17:01

You left out of option 1: ... and pay you to review/correct any errors that result from them inputting data to wrong place (or indeed when it shouldn't have been entered in the first place).

Assuming that agents don't swallow the extra hours (after all this is govt policy not an unexpected pandemic), then the cost comparisons will be very unequal.

Mind you, MTD for IT is where the proverbial really hits the rotating blades!

Thanks (2)
Replying to ireallyshouldknowthisbut:
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By Paul Crowley
12th Jun 2021 12:03

Agree
Tax is about risk when any judgement is involved.
The same could be said about tax penalties on submitting correct VAT returns but which may not comply with the required method of compilation.
Two still filing the old way have just deregistered, having ceased trade.
I now only have one left that we submit who exports outside of EU.
Not checked recently but we will still have some volunteers that still file the old way and will discuss between now and then

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By deltaheavy
14th Jun 2021 11:14

In our organisation we have around 50 SPV companies all of which are voluntarily vat registered and all have turnover well below the current threshold, each will remain registered and will not de-register until such time as the entities are liquidated. It would appear that each of the companies have been migrated onto the Enterprise Tax Management Platform (ETMP) platform as the VAT Return now has a completely new look and feel upon logging in to "fill in the boxes and submit". Does anybody know if we will still be able to carry on doing this from/after April 2022, saying as the ETMP is the MTD database? Or will we still have to manually sign each entity up to MTD and file using say bridging software? NB The vat records are all in excel anyway.

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Replying to deltaheavy:
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By Hugo Fair
14th Jun 2021 13:40

At the risk of technical simplification ... ETMP does not equal "the MTD database" - it could better be thought of as the 'MTD-ready or enabled' database.

It does NOT mean that the migration of a company's records to that platform has automatically registered them for MTD, merely that HMRC should be in a better position to not louse up the records when you/your client registers for MTD.

Thanks (2)
Replying to Hugo Fair:
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By deltaheavy
14th Jun 2021 15:37

Hugo Fair wrote:

At the risk of technical simplification ... ETMP does not equal "the MTD database" - it could better be thought of as the 'MTD-ready or enabled' database.

It does NOT mean that the migration of a company's records to that platform has automatically registered them for MTD, merely that HMRC should be in a better position to not louse up the records when you/your client registers for MTD.

Cheers Hugo, probably just massive straw clutching on my behalf. Will register these lot for MTD in three batches after each of the next vat returns (they are spread out over the quarter dates). Will use 123 sheets or similar to handle the submissions going forwards.

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By PChapman
14th Jun 2021 11:42

I would not let the MTD question dictate whether to continue VAT registration or not. it is - in the sceme of things a minor irritation compared to the business imperitive that the company should be basing decisions on...

The MTD train is going to keep rumbling on so get people compliant whan it suits rather than when forced.

We know from history that these things dont just "Go away" because we want them to.... nobody outside government would agree that IR35 is fit for purpose but they will make it "work" with a sledge hammer, because actually admiting that it doesn't is politically unacceptable.

Thanks (1)
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By JacquiMBurns
14th Jun 2021 13:41

I signed all my clients up to MTD the first time round & sign up all new clients for MTD as I register them. Where I am doing the bookkeeping to prepare accounts submissions this makes everything easier. You can also change details more easily when signed up to MTD (in most cases). This way I make sure that my clients only claim VAT where it is appropriate to do so so they, & I, am content & where there is a VAT inspection, I can deal with it satisfied that my clients will not face fines/penalties etc. Only a few clients have deregistered or said they would prefer to do their own & those often come running back when they have a problem.

Thanks (1)